Downing Street has firmly rejected accusations that Chancellor Rachel Reeves misled both the public and financial markets about the scale of the so-called “black hole” in the UK’s public finances ahead of the highly anticipated Autumn Budget delivered on November 27, 2025. The controversy has ignited a fierce political debate, with opposition leaders and economists scrutinizing the government’s communication and fiscal strategy in the weeks leading up to the Budget.
In the months before the Budget, headlines were dominated by warnings that Reeves could be staring down a daunting £20 billion gap in meeting her self-imposed fiscal rule: not borrowing for day-to-day government spending. According to BBC, these warnings raised concerns about potential tax hikes and spending cuts, with many speculating that the Chancellor would be forced to raise income tax rates to balance the books.
However, as ITV News and GB News reported, this narrative was complicated by a letter from the Office for Budget Responsibility (OBR)—the government’s independent fiscal watchdog—published just days after the Budget. The letter revealed that, as early as September 17, 2025, the OBR had informed Reeves that the public finances were in much better shape than widely thought. Specifically, the OBR’s first fiscal forecast ahead of the Budget indicated a black hole of just £2.5 billion, a figure far smaller than the £20 billion being discussed publicly.
Crucially, by October 31, 2025, the OBR’s final pre-Budget forecast showed that the gap had not only closed but had actually turned into a surplus of £4.2 billion above the Chancellor’s day-to-day spending plans. This surplus meant that, technically, Reeves was on course to meet her main borrowing rule, albeit with less “headroom” than the £9.9 billion buffer she had left herself the previous year. As the OBR explained, while it had downgraded productivity forecasts, this was “offset” by higher wage growth, which in turn boosted government tax revenues.
Despite these improved forecasts, Reeves continued to warn of “difficult decisions” and highlighted the risks posed by weaker productivity. On November 4, 2025, she used a pre-Budget speech in Downing Street to caution that the UK’s productivity performance was “weaker than previously thought,” adding that this would have “consequences for the public finances too, in lower tax receipts.” In a subsequent interview with The Guardian, Reeves acknowledged that her team had considered raising income tax and National Insurance, stating, “We did look, as everyone knows, at income tax and National Insurance, that was a responsible thing to do, because we didn’t know the size of the downgrade, the productivity.” She added, “I wasn’t willing to cut public services, because people voted for change at the election.”
The Chancellor’s warnings, coupled with her reluctance to rule out tax hikes, fueled speculation in the media and among financial analysts that significant tax increases were on the horizon. Conservative shadow chancellor Sir Mel Stride accused Reeves of creating a “smokescreen” to justify raising taxes, arguing, “Labour knew all along that they did not need to raise taxes and break their promises. It appears the country was deliberately misled to try to explain away Labour’s decision to spend billions more on welfare.”
Conservative leader Kemi Badenoch took the criticism further, declaring on social media, “For months Reeves has lied to the public to justify record tax hikes to pay for more welfare. Her Budget wasn’t about stability. It was about politics: bribing Labour MPs to save her own skin. Shameful.” Badenoch also called for Reeves to be sacked, citing the OBR’s letter as evidence that the Chancellor had not been transparent about the true state of the public finances.
Downing Street, however, has stood by Reeves. Asked directly whether the Chancellor had misled the public or the markets, Prime Minister Sir Keir Starmer’s official spokesman responded, “I don’t accept that.” He continued, “As she set out in the speech that she gave here (Downing Street), she talked about the challenges the country was facing and she set out her decisions incredibly clearly at the Budget.” A Treasury spokesperson echoed this sentiment, stating, “We are not going to get into the OBR’s processes or speculate on how that relates to the internal decision-making in the build-up to a Budget, but the Chancellor made her choices to cut the cost of living, cut hospital waiting lists and double headroom to cut the cost of our debt.”
In the end, Reeves did not raise headline income tax rates, a move that was reportedly dropped on November 13, 2025, as improved forecasts became clear. Nonetheless, the Budget did include £26 billion in tax rises, most notably by freezing income tax thresholds for an additional three years—a measure that will gradually pull more earners into higher tax bands over time. As BBC and ITV News noted, these tax hikes were presented as “fair and necessary” choices, with Reeves emphasizing her unwillingness to cut public services or renege on election promises.
The political fallout from the Budget has been swift and fierce. Economists like Ben Zaranko from the Institute for Fiscal Studies questioned the rationale behind the government’s pre-Budget briefings, writing on social media, “At no point in the process did the OBR have the government missing its fiscal rules by a large margin. Leaves me baffled by the months of speculation and briefing. Was the plan to lead everyone to expect a big income tax rise, then surprise them on the day by not doing it..?”
Meanwhile, Labour supporters have defended Reeves, pointing out the Chancellor’s transparency about the economic challenges and the shifting fiscal landscape. Dame Meg Hillier, Labour chairwoman of the Treasury select committee, requested a detailed timeline from the OBR about its pre-Budget forecast process, underscoring the importance of clarity and accountability in government communications.
As the dust settles, the debate over transparency, economic messaging, and the true state of Britain’s finances is far from over. The clash between political leaders, fiscal watchdogs, and the public continues to shape the narrative around the UK’s economic future and the government’s approach to managing it.
